Normally, debt levels are reduced in times of economic prosperity. Not this time.
Normally, inflation goes up when stresses within the economy increase. Not this time.

Normally, you get interest on your savings account. Not this time.
Normally, interest rates differentials are in proportion to the underlying risks. Not this time.
Normally, central banks do not start cutting interest rates until the economy is in a recession. Not this time.
Normally, the US advocates free trade. Not this time.
Normally, you pay interest when you borrow money. Not necessarily and increasingly less often this time.
And normally, equity valuations are always to a greater or lesser extent based on the underlying fundamentals. Hardly the case this time.


Ostensibly, the global economy has been doing very well for several years now. The pace of the recovery since the Great Financial Crisis that turned the economy upside down in 2008 seriously underwhelmed, but most western countries have nevertheless made considerable progress. Unemployment has come down and stock markets and house prices are back at or have exceeded their pre-crisis levels. Not a cloud in the sky, you would think, but looks can be deceiving. The monetary medicine that the patient got injected in 2008 and 2009 is still being administered. As soon as attempts were made to reduce the dosage, falling equity prices caused everything to start wobbling. So, the doctor promptly injected additional liquidity. The side effects are considerable. The mountain of debt is growing at an alarming rate, because borrowing money has never been so cheap due to the ample liquidity. The extremely low interest rate level does not provide any incentive for borrowers, including countries such as Italy, to reduce their debt, while worldwide over 25% of the bonds outstanding generate negative yields.

Hans Stegeman, Head of Research and Investment Strategy

Meanwhile, the expansion - which in many countries is now reaching the limits of what is possible given the tightness in the labour market - has hardly resulted in substantial inflation. And so central banks see no reason for modifying their monetary policies, which also allows equity prices to keep rising.

Add to this a US president who has turned his back on free trade and the economy has been turned completely upside down. Meanwhile, the pressure to the head increases and the feet start to go numb.

Dizzy and unstable

Just try and get back on your feet when that happens. I know from experience how hard that is and I suspect that it will be no different for an economy.

When the economic tide turns, it is - normally - possible to commence a soft landing by easing monetary conditions and providing budgetary support. As for monetary easing, all central banks have, as I have indicated above, gone about as far as they can go. Budgetary support is still possible in countries such as the Netherlands and Germany, but for the US - by far the largest economy in the world - this is becoming increasingly challenging.

Falling over is certainly not an attractive prospect, so I understand why policy makers want to put this off for as long as possible. A tumble is inevitable, however, and the longer we wait for it to happen, the harder the fall is likely to be. My advice would therefore be to bite the bullet and get back on our feet again as soon as possible. We will no doubt feel quite dizzy for a while - i.e. suffer economic pain - but we will just have to accept that. And that pain will mainly hit the financial bubbles that are now re-inflated every time they get a small puncture.

Once the dizziness has cleared a bit, we ought to take a good look at our economic insights. Because it is as clear as daylight to me that these insights require some modification. Other people appear to think so too, including several CEO's in the US, who have indicated themselves  that shareholder value should no longer come first.

Or would that in fact constitute turning the world upside down?

Anyway, in my next column I will present some ideas about how economies could get back on their feet.